Louis Vuitton, Dior, Saint Laurent, Gucci. These are just some of the brands belonging to major luxury conglomerates LVMH and Kering. Positioned at the forefront of the global luxury market, these conglomerates are hugely responsible for the industry's staggering 397-billion-dollar market valuation.
From clothing and handbags to jewellery and watches, these conglomerates, alongside a few independent houses, stand as the driving forces behind the most coveted and elite luxury products. This industry is a powerhouse. Just to provide you with further insight, LVMH CEO Bernard Arnault, whose estimated net worth is 200-billion-dollars, made his first appearance on the Forbes billionaires list in 1997.
The conglomerateur briefly even claimed the title of the richest person alive in April, surpassing tech giant Elon Musk. But who exactly makes up the clientele of these huge conglomerates? Who shoulders the weight of that giant 397-billion-dollar valuation?
Is it the elite? The upper class? Surprisingly, no.
It’s predominantly the upper-middle class that sustains the industry. Jean-Jacques Guiony, the Chief Financial Officer at LVMH, stated to the Financial Times in July, “We don't sell most Louis Vuitton products to rich people; it is to people who have money and want to indulge themselves. ” So, the question becomes: why aren't the mega-rich, the upper-class, immersing themselves in this industry as enthusiastically as their middle-class counterparts?
Why are they denying themselves of those sweet, sweet offerings from Louis Vuitton or Saint Laurent? Why are the 1% not buying luxury? But before we answer those questions, let's define what a luxury product actually is.
I always wonder, what the process is creating these pieces. It almost looks like the universe. There is a life inside.
Absolutely. While there are a lot, and I mean a lot, of definitions for what qualifies a product to be considered luxury, the most common criteria usually comes down to three things: a premium price point that creates a high barrier to entry, incredible craftsmanship with exceptional attention to detail, and a distinct capability to function as a symbol denoting wealth, or more specifically distinction. All successful brands within the realm of luxury are able to offer these services in one way or another.
That being said, there is still a complex hierarchical web at play. So, let's begin at the basic level by categorizing them into financial groups. The biggest luxury houses, the ones that come to mind when most people picture luxury, fall into the category we'll refer to as the "Major League".
Examples in this league include Louis Vuitton, Dior, Gucci, and Chanel. All of these brands either already have, or are on track to achieve, annual revenues of 10-billion-dollars. The standout in this group is undoubtedly LVMH's Louis Vuitton, which this year made history as the first luxury fashion brand to attain an annual revenue of 20-billion-dollars.
These brands, as heads of their industry, typically lead the trends that we see both on the runway and on the streets. Their mission goes beyond merely creating luxury; they strive to push the boundaries of creativity itself. The next group of luxury houses is what we'll refer to as the "Minor League.
" Most luxury brands find their place in this category; but even in this league, there is a spectrum - both financial and creative. Some brands are well known to the general public, whereas others are more obscure, limited to fashion enthusiasts and people with enough money to buy luxury products. Can you please spell Gabbana?
Hello? The more well-known and financially successful brands in this group generate around 2 to 5-billion-dollars in annual revenue. A few brands under this section are Celine, Saint Laurent, Armani, and Balenciaga.
This subdivision in the Minor League mirrors the Major League in that, similar to most Major League brands, some are very much interested in a boundary-pushing and a more artistic vision of fashion. But it differs in that certain brands focus more on maintaining a traditional identity, aiming to conserve specific codes of dress. The other half of the Minor League is made up of brands not widely recognized by the general public but still hold prominence within the fashion industry.
These brands cultivate their own niche of luxury consumers and typically generate annual revenues under 2-billion-dollars. Examples in this group include Loro Piana, Brunello Cucinelli, Bottega Veneta, and Loewe. Most of these brands fall under the category of quiet luxury - this will be important later - but some brands like Bottega Veneta and Loewe, are typically considered to be artistic rather than traditional houses.
Despite this, both brands are still associated to the rigid quiet luxury movement because they offer products that align with the style’s philosophy. Both brands seem to have ambitions of transitioning to the other half of the Minor League, aiming to generate over 2-billion-dollars in revenue in the coming years and attain broader recognition beyond their niche. An example of a transformation of this type can be found in Celine.
Under Hedi Slimane’s stewardship, the French house went from being a relatively niche 500-million-dollar brand to a global powerhouse raking in over 2-billion-dollars in revenue annually. Okay, now that we’ve outlined a general idea of the categories, we can begin to answer our initial question: why aren’t the 1% buying into luxury? Well, they are, but they aren’t.
Remember when I said luxury categorisation is sort of like a web? This is where that idea comes into play: most rich people in America and Europe, and when I say “rich” I mean the top upper-class, opt to not invest in Major League brands when shopping for luxury goods. Instead, they spend their money on select Minor League brands, with a few exceptions that we’ll touch on later, that all fall within or intersect with the realm of quiet luxury.
Quiet luxury is a fashion aesthetic coined to challenge the typical style associated to wealthy groups of people. It’s completely understated and subdued. See, there are multiple "variations" of quiet luxury but recurring motifs in most of them all include: subtle usage of or no logos, a subdued or achromatic colour palette, and no flamboyant designs.
Of course, there are ways to experiment and play around with these elements and still embody the aesthetic - especially when it comes to embellishment, accessories, and aristocratic colourways such as gold and silver. But essentially, the aesthetic is about elevating "normal" clothes to offer an "if you know, you know" type of distinction. And why is this distinction important to the 1%?
Sign value. See, sign value, a term French sociologist Jean Baudrillard, functions as the cornerstone of a luxury product. It delves into what an item symbolises in terms of social, cultural, or personal contexts.
In the realm of luxury, sign value stands as the driving force behind the entire industry. It's the literal reason for its existence and success in the modern world. Sign value also reveals why brands situated in the Minor League, despite bringing in significantly lower annual revenue than their Major League counterparts, might possess symbolic significance equivalent to or even surpassing that of a Major League brand.
This phenomenon can be attributed to factors and characteristics such as exclusivity, heritage, and craftsmanship, that become intertwined with the brand's identity. So by choosing to dress in a more understated manner, the 1% adopt a kind of sign value that signals to others that they aren't new money - people who have only recently acquired their wealth. The idea is that new money tends to showcase affluence through flashy displays, often marked by ostentation and conspicuous consumption.
In contrast, the 1% tend to prefer a subtler approach. Embodying a more restrained sense of style that suggests they come from longstanding generational wealth. This distinction reflects a cultural narrative where old money conveys a sense of tradition, refinement, and social standing.
While new money is associated with a more brash and immediate display of wealth. That said, despite being considered new money because their wealth doesn’t go back generations, members of the LVMH family, who are literally at the helm of almost every major luxury brand in the world, also embrace a simplistic approach to style. This underscores two points.
First, that Old Money-New Money dynamics are less literal than they are a state of mind; and second, that these rigid distinctions do not completely apply to the modern day. Increasingly, uber-rich families and individuals who would be considered new money are adopting characteristics traditionally associated with old money. But back to the topic at hand, the 1% don't want Louis Vuitton monograms covering their handbags, and they really don’t want Gucci motifs all over their clothing.
They intentionally avoid being plastered in overt luxury because they’re aiming to convey that they themselves personify wealth. I hinted at this before, but the brands that capture the attention of the 1% can usually find themselves in the Minor League. Brunello Cucinelli, Loro Piana, Ralph Lauren, Celine.
All these brands fit neatly into the realm of quiet luxury. See, It's not the uber-rich carrying the heavyweights of the industry, most of them purposefully ignore the big designers and brands in fashion. it's the upper-middle class doing all that heavy lifting.
And how do we know this? During the pandemic, while most businesses were grappling with dangerous financial underperformance and the very real possibility of permanent closures, the fashion industry thrived. LVMH's fashion and leather goods units saw a significant 18% increase in sales during the fourth quarter of 2020.
Gucci, Kering’s crown jewel, delivered revenues of 11-billion-dollars, up 31. 2% from 2020, exceeding pre-pandemic levels in 2021. Another luxury conglomerate, Richemont, reported sales exceeding 6 billion dollars in the company's third quarter of 2021, a performance 38% better than their 2019 Christmas quarter before the pandemic.
The industry was experiencing an unprecedented boom. Any guess who was leading this boom? The upper-middle class of course.
You see, during the pandemic a significant portion of the upper-middle class indulged in luxury treats with the additional savings they had in the bank. There was this sense that the world could literally come to an end at any moment. And this uncertainty about the future led many to believe that living in the moment was imperative.
That even when quarantining with only a few friends and family, we had to live every day like it’s our last. And what was the result of this YOLO attitude? People started splurging out.
You need to keep in mind what our good friend Jean-Jacques Guiony said earlier. Most luxury items from Major League brands are not targeted at the uber-wealthy upper classes, but instead at the upper middle classes. While I should note that Major League brands do offer custom made-to-order products exclusively designed for the 1% to request and purchase, such as couture and tailor-made clothing, the majority of their offerings cater to and are marketed towards the upper-middle class and “nouveau riche”.
Are they expensive? I mean, yeah. But are they within reach?
Absolutely. Relying solely on selling to the 1% wouldn't be enough to pass that 10-billion-dollar mark. It's important to know that when people say the “1%” nowadays, it's usually colloquialism for the 0.
1%. A very, very, small demographic of people in the world. And do you think ambitious brands and conglomerates want to depend solely, or even primarily, on this demographic to achieve 10-billion-dollar goals?
No way. It’s too risky. But the middle classes on the other hand?
They’re the perfect group to rely on. Estimates indicate that the middle class demographic comprised about 350 million people. More than the entire population of the US.
Men and women from the middle class are the ones purchasing those 3000-dollar handbags. Men and women from the middle class are the ones splurging on pieces from the latest fashion week collections. They have the financial flexibility to occasionally indulge themselves without compromising their overall financial health.
They are the literal lifeline of the modern-day fashion market. And where do the middle class shop when they want to indulge in luxury? The Major League of course.
And when you think about it, it makes sense. Most people, even if they don't openly acknowledge it, place high significance on sign value. Only a small percentage of people make luxury purchases without considering the symbolic value attached to that particular luxury item.
Imagine you don't have the financial means to consistently splurge on luxury. Instead, you opt to invest in a select few pieces of expensive luxury goods every few months or so. In this scenario, are you more likely to choose a product that clearly signifies its high price point, or would you rather something more obscure, a logo-less handbag for example, only recognizable to a specific niche that you’ll probably never run into?
Chances are, you would lean towards the more “obvious” bag because it'll be easier to rationalise - and you’ve probably been conditioned to like it more anyway. How with this product which people want, can we maximise the desire. Our business – you asked a question about luxury – luxury, for me, is how can you create desire.
This is why most Major League luxury brands become less attractive to the elite upper classes who seek exclusivity. They instead gravitate towards more understated brands. Still, for conglomerates, it's all the same.
Their market value and revenue increase regardless, and they often have other brands in their portfolio that cater to the needs of both the 1% and the middle class. But remember, that was life during the pandemic. During that epic boom with constant, record-breaking highs in the industry.
But what about now? Yeah, now, it’s not looking so good. The fashion industry, across nearly every metric, has been struggling to grapple with the post-pandemic world.
Although still generating billions, the industry has significantly slowed down this past year, with LVMH experiencing a below-estimated 9% organic revenue growth and being dethroned by drugmaker Novo Nordisk as the most valuable company in Europe. Major League brands like Gucci are going through a very public struggle, with the brand's organic sales falling 7% in the third quarter of 2023 - worse than the 6. 2% expected by analysts.
The brand even appointed new creative director, Sabato De Sarno, who critics have noted has taken a considerably less daring approach to Gucci than his predecessor Alessandro Michele. Creative brands in the Minor League, such as Saint Laurent and Balenciaga, have also had to grapple with the new reality, with both reportedly experiencing some level of underperformance in sales this year. But why is this?
Why did an industry experiencing so much growth during a pandemic of all of a sudden begin to slow down once we emerged from the crisis? Simple. The 1% are still spending, and the middle classes are not.
Middle-class populations have begun to cut back on luxury spending, opting instead to save more and uniformly limit expenditures on non-essentials. They’re also delaying major purchases such as homes and cars, redirecting more money into savings amid rising levels of inflation and a global cost-of-living crisis. Bloomberg reports that this shift in behaviour is occurring on a global scale, affecting China, America, and Europe – all massive markets for the luxury industry.
This trend explains the declines and underperformances seen from the Major League brands relying on middle-class spending. But, as you’ve probably already guessed, the brands not recording underperformances are predominantly from that latter category of the Minor League. Brunello Cucinelli, Ermenegildo Zegna, Loro Piana, Loewe.
None of these brands have faltered in the post-pandemic era. In fact, some of them even reported record earnings. Brunello Cucinelli for example not only jumped a solid 27.
5% in revenues during the second quarter of 2023 but also upgraded their revenue forecast for the third time last October because of this immense growth. Because these brands are attractive to the billionaire population, who are unfazed by concerns of inflation or costs of living, they continue to ride the money wave while their big-brother brands struggle to navigate the oceans. In addition to the Minor League brands appealing to the 1%, there are also a few Major League anomalies thriving in the post-pandemic landscape.
One of these anomalies is French luxury brand Hermès. Despite undoubtedly being a Major League player, the house has achieved insane financial success, raking in 12-billion-dollars in annual revenue last year. Their ability to preserve a level of selectiveness gives them sign value that’s hard to find in most Major League fashion brands.
Sign value that’s usually only reserved for the niche Minor League brands. With all that being said, quiet luxury doesn't appear to be so quiet anymore. TikTok videos, Instagram posts, and general discourse about "quiet luxury," "old money," "stealth wealth," and other variations of its kind have been on the rise for a while now.
This surge has prompted people from all demographics to try to emulate the style. Whether that’s the small minority of the upper-middle class that still sporadically indulge in luxury switching to more niche brands, or the broader population opting for fast-fashion dupes in an attempt to mirror the 1%. Remember when I mentioned that Brunello Cucinelli and some other Minor League brands were achieving record sales?
This is undoubtedly because some in the middle class, who are willing to take on a risk and splurge, may be shifting their preferences towards this "new" sign value. You just can't help but wonder: Is it just a matter of time before we witness a resistance of this style among the uber-rich? Could they abandon minimalism for something more dramatic in reaction to the once "quiet" style no longer maintaining its hushed demeanour?
Only time will tell.
